Inefficiency of Corporate Investment and Distortion of Savings Behavior in Japan

35 Pages Posted: 6 Oct 2005 Last revised: 20 Jun 2009

See all articles by Albert Ando

Albert Ando

University of Pennsylvania and NBER (Deceased)

Dimitris Christelis

Adam Smith Business School, University of Glasgow; Centre for Studies in Economics and Finance (CSEF), University of Naples Federico II; Center for Financial Studies (CFS); Netspar

Tsutomu Miyagawa

Japan Center for Economic Research

Date Written: January 2003

Abstract

The value of corporate equity in Japan is dramatically smaller than that implied by the sum of the reproduction cost of accumulated investment and the market value of land owned by corporations (that is, the Tobin's average 'q' is much smaller than unity). This discrepancy appears to result from the very low rate of return earned on corporate investment and also from the extraordinarily small and stagnant dividend payments. It has persisted at least since l965, and its size has become progressively larger over time. If the value of corporate equity were sufficiently high to close the discrepancy, the net worth of the household sector would have been larger than its actual value by some 395 trillion yen in l998. Such an addition to household net worth would have generated additional consumption demand of at least 15 trillion yen. This paper traces the development of this valuation discrepancy over time, and explores its possible causes. In the process, we prepare an alternative estimate of the capital stock and its depreciation to those offered in the National Accounts. The basic difference is that the depreciation rates underlying our calculations are substantially lower than those used in the Japanese National Accounts, and closer to values prevailing in the United States. The qualitative characteristics of our results, however, remain unaffected by the choice between these alternative estimates.

Suggested Citation

Ando, Albert and Christelis, Dimitrios and Miyagawa, Tsutomu, Inefficiency of Corporate Investment and Distortion of Savings Behavior in Japan (January 2003). NBER Working Paper No. w9444, Available at SSRN: https://ssrn.com/abstract=370428

Albert Ando

University of Pennsylvania and NBER (Deceased)

N/A

Dimitrios Christelis (Contact Author)

Adam Smith Business School, University of Glasgow ( email )

Room 207F, Gilbert Scott Building
University Avenue
Glasgow, Scotland G12 8QQ
United Kingdom
+44 141330 2000 (ext. 0624) (Phone)

HOME PAGE: http://www.gla.ac.uk/schools/business/staff/dimitrioschristelis/

Centre for Studies in Economics and Finance (CSEF), University of Naples Federico II ( email )

Via Cintia, Monte S. Angelo
Naples, NA 80126
Italy

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tsutomu Miyagawa

Japan Center for Economic Research ( email )

2-6-1, Nihonbashi Kayabacho
Chuo-ku, Tokyo 103-0025
Japan

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